More trouble ahead: Analysts
ECONOMIC analysts and commentators have projected a gloomy outlook for 2016, warning that the US$4 billion National Budget presented by Finance Minister Patrick Chinamasa last week could fail to avert the worsening economic crisis in the country.
They spoke as Chinamasa’s fiscal plan for the coming year revealed that almost US$3,9 billion of the total budget would be spent on recurrent expenditure, leaving only about US$150 million for crucial growth stimulating capital projects.
Only eight percent of the total envelope was committed to capital projects, an allocation that would make it difficult for the economy to achieve the projected 2,7 percent growth rate.
This leaves the country on the throes of another difficult year ahead.
There will be little prospect for job creation but hardships would intensify amid imminent recession, according to leading commentator, Luxon Zembe, former president of the Zimbabwe National Chamber of Commerce.
“The economy is drifting into recession,” Zembe told a post budget breakfast meeting in Harare on Friday.
He said the country’s situation would be made even more difficult by the fact that it was unable to print cash to address a liquidity crisis that had affected most sectors of the economy.
Zimbabwe adopted a multicurrency system in 2009, with the United States dollar and the South African rand becoming the two major mediums of exchange.
Following the currency reforms, economic growth rebounded, with gross domestic product (GDP) increasing by 9,4 percent in 2009, 9,6 percent in 2010 and 4,4 percent in 2012. It is expected to grow by 1,5 percent this year.
The growth rates have been slowing since 2011, as a result of a liquidity crisis, firm closures and prolonged droughts, now made worse by another imminent poor season.
Economists are projecting widening income losses as more workers are likely to lose jobs.
These factors have led to widespread fears that government could re-introduce the Zimbabwe dollar to deal with the crisis.
But government has said it would not contemplate such a move until there was significant stability in the economy.
“Just forget about the Zimbabwe dollar until we have got our capacity utilisation to the levels of 90 percent,” Zembe said. “We are currently below 30 percent. If you look into what is taking place in industry, it will tell you the whole story.”
Zembe pointed out that the fact that the US$3,9 billion that the Zimbabwe Revenue Authority (ZIMRA) would collect was earmarked to go towards salaries and wages meant that there was very little to comfort stakeholders about an imminent turnaround.
“With the economy going into a tailspin, will ZIMRA be able to collect that? We are still in deep trouble, serious trouble. That budget should have presented a 30 percent investment in Public Sector Investment Projects (PSIP) if we wanted to change the economy. But PSIP were only allocated eight percent of GDP. We should stand on economic principles in our country if we want to turn things around. You can play around with anything else but the economy is different,” said Zembe.
Maize production levels in Zimbabwe are at around 0,8 tonnes per hectare, against about 20 tonnes per hectare in most countries.
Agriculture is seen as one of the key economic sectors in Zimbabwe, feeding industries with raw materials and crucial in guaranteeing food security.
Yet allocations to agriculture in the 2016 National Budget indicated that it was not among priority sectors like education which received the highest vote of US$810 million for both the Ministry of Primary and Secondary Education and the Ministry of Higher Education.
This was followed by the Ministry of Home Affairs, which received US$396 million, the Ministry of Defence which was allocated US$357 million and the Ministry of Health and Child Care, which was given US$330 million.
Such funding should have been allocated to more needy areas, such as rural constituencies which have the bulk of the country’s population.
About 22,5 percent of Zimbabweans live in rural areas under extreme poverty, according to Chrystelle Tsafack, social policy specialist at the United Nations Children’s Education Fund (UNICEF) in Harare. At least 200 000 households are living in extreme poverty in Zimbabwe, according to UNICEF estimates.
Tsafack said UNICEF was worried that in the past few years, funding towards social protection services was being progressively reviewed downwards.
She said the situation was made worse by the fact that all government ministries had this year received only about 30 percent of their 2015 budget allocations.
In the 2016 budget, UNICEF estimates that only 0,17 percent would be channelled towards social protection, down from 0,76 percent in 2014 and 0,46 percent last year.
And in a country that has suffered from an unprecedented spate of company closures and job losses, it would have been proper for the budget to allocate more resources towards the needs of the vulnerable, Tsafack said.
“When you look at the economy, where are the jobs?” she asked.
“There are very few jobs even if they want to work. They used to have jobs, now it is not the case anymore,” she noted.
Zembe applauded Chinamasa for coming up with a programme to support cotton farmers with inputs for three seasons but hit out at government for making wrong priorities in agriculture, especially by prioritising tobacco production at a time when the world was discouraging its production.
He said Chinamasa, who spoke glowingly about the development of Special Economic Zones in the 2016 budget, should have considered coming up with agricultural economic zones.
“We need to create agricultural economic zones, put our anchor farmers in there and resource them. There is no future in tobacco where we are putting resources. It is surprising that we always want to put our efforts against the currency. When the world was saying stay away from asbestos, we were investing in asbestos,” Zembe said, in reaction to Chinamasa’s announcement that government would be taking steps to reopen closed asbestos mines and create about 3 000 jobs.
2016 Budget highlights
* Total envelope at US$4 billion
* Economy seen growing by 2,7 percent in 2016 against 1,5 percent in 2015
*Inflation to average -1,2 percent
*Recurrent expenditure, at US$3,6 billion, is 92,1 percent of budget
*Revenue projected at US$3,85bn in 2016, US$150 million deficit (1,1 percent of GDP) to be funded through local borrowings
*Re-engagement with international lenders
*Education gets biggest vote of US$810 million
* Home affairs receives US$396 million and defence US$357 million
*Health vote at U$330 million
*Government wage bill seen at US$3,9 billion
*Streamlining of the wage bill, agricultural extension workers, non-payment of salaries to teachers at non-government schools and allowances, set to save US$14,2 million per month, or US$170 million per year
*Civil service staff complement, excluding the army, jump 36 percent since 2009 from 203 000 to 276 000.
*Exports to grow to US$3,7 billion in 2016, from US$3,4 this year
*Imports to decline marginally from US$6,3 billion in 2015 to US$6,2 billion next year
*Gold production to reach 20,1 tonnes in 2016, from 18,7 tonnes in 2015
*Royalties on gold reduced to three percent from five percent
*Government takes over Ziscosteel debt and lays off workers
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